Frontera NorteSur July-August  2004

Business Environment Affects Investment in Mexico--Not Just Wages

The most frequently heard reason for companies leaving Mexico or not investing there is that Asian and other Latin American nations offer a much cheaper work force.  The price of labor however is not the only factor determining where manufacturing takes place suggests a recent examination of the Mexican economy. 

According to a Japanese study of Mexico's business environment which was recently sent to Mexico's Secretary of Economy, Japanese investment in Mexico is limited by frequent and sudden changes in laws that regulate business and finance.  Theft plus high security costs at plants are also a detriment to a larger Japanese presence in the Mexican economy.  High transportation costs and the inadequacy of the Mexican legal system to satisfactorily resolve disputes also turn away some possible investors.  The report concluded that Mexico must improve its business environment if it wants to see the arrival of new business ventures.

The report, which is summarized in the Cd. Juárez newspaper El Diario, found that security expenditures at production plants are four times higher in Mexico than in the US.  Despite the added security measures, loss to theft is high.

Noriteru Fukushima, an official in the Japanese embassy in Mexico, gave the example of one company from his country that spent the equivalent of US$1.7 million on security but still suffered US$1.3 million in losses due to 22 incidents of theft.  These expenses equaled 0.60% of the corporation's 2003 sales whereas a similar plant in the US only lost the equivalent of  0.015% of sales to theft and security expenses.

Another Japanese corporation paid lawyers US$1.5 million to prove that Mexico's Secretary of Taxation had made a paperwork error which had previously led to that office's accusation that the company did not pay value-added taxes in 1993.

Changes to tax codes and other business regulations also create difficulties for companies and scare away investors.  One Japanese company had to devote financial and human resources to teach its distributors about new laws for small businesses in 2004.

Japanese companies also find that the Mexican legal system is inadequate for resolving payment disputes between corporations.  Even when a Japanese company wins a court case related to unpaid bills, many debtors do not pay their bills. To make up for this, companies raise their prices a few percent as a way to insulate themselves from customers that do not pay their bills.

The Japan-Mexico free trade agreement will be an incentive for Japanese investment in Mexico, says Fukushima but he added that the results would be much better if Mexico could reduce some of the factors that hurt its economic competitiveness.

Source: El Diario (Ciudad Juárez), June 18, 2004.

China May Invest in Baja California but Attitudes Need to Change

With the possibility of a wave of Baja California investment from China, BC’s Secretary of Economic Development, Sergio Tagliapietra, said that it is necessary to change Mexican attitudes about China.  Chinese investment in the state is an opportunity for BC residents, he noted.

The state should leave aside its fears about competition with China and begin to see the Asian nation as a possible ally, Tagliapietra told a Tijuana forum on August 19, 2004.  

The forum he spoke at was “Mexico and China: Competition and Collaboration in Baja California” and was sponsored by the Institute of the Americas, an independent, non-profit institution located at the University of California, San Diego.

Tagliapietra also gave the news that next week a group from China will be visiting Baja California to look into investment opportunities.  The group will be composed of Chinese government officials and 23 people from China’s business world.  Tagliapietra did not state which companies are represented by the possible investors. 

In Tagliapietra’s opinion, economic indicators point toward an explosion in Chinese investment in BC, just like what happened years ago with Japan and Korea.

“A few years ago,” he said, “we saw an interesting wave of Japanese investment, later we saw a wave of Korean investment and now comes the time of investment from China.”

Ensenada Worried About Tourist Tax on Cruise Ship Passengers

Rodolfo Elizondo Torres, Mexico's secretary of tourism, recently announced that in July of this year his department would indicate how much tourists will be charged when they arrive at a Mexican port. 

Elizondo denied that the fee is a new tax.  Instead he described it as a way to have maritime visitors pay the same sorts of fees that others do when they enter Mexico via land routes or at airports. 

Ensenada, which has much of its economy tied to cruise ship visits, opposes the new set of fees.  

Arnulfo Félix Arce, the president of an Ensenada business council, said that the local business community will not let a Mexico City led measure disrupt the local economy.  He also noted that the national chamber of commerce, Canaco, also opposes the new charges on cruise ship tourists. 

According to Tijuana's Frontera newspaper, the Ensenada port receives four cruise ship arrivals per week.  This provides an average of 10,000 weekly visitors who spend a significant amount of money in the city.

Source: Frontera (Tijuana), July 21, 2004. 

Reynosa & Hidalgo:  Some Money-Exchange Businesses Run Out of Dollars

A number of  money-exchange businesses in Reynosa, Tamaulipas and Hidalgo, Texas exhausted their supplies of dollars during the period from Saturday, August 14 to Monday, August 16, according to an article in the Reynosa newspaper El Mañana.   

The unusually high demand for dollars may have been due to Mexican families shopping for school uniforms and supplies in Texas just before the start of the school year.  Prices are often cheaper in the US stores. 

Despite the increased demand for dollars, business owners said they stuck to the going commercial rate of 11.55 pesos to the dollar. 

Long lines of cars were seen outside money-exchange businesses in Hidalgo, according to El Mañana.  

El Mañana attributed some of the increased business to Texas' tax-free, back-to-school shopping weekend when the state suspends its sales tax on shoes and clothing with a price under US$100.  However, the tax break was the previous weekend, August 7 and 8.  

The newspaper also indicated that Mexican shoppers were not just from Reynosa but also from other parts of the region further from the US-Mexico border. 

Source: El Mañana (Reynosa), August 18, 2004. 

Gas Sales Increase 40% in Reynosa after Prices Lowered to Near US Levels

In December 2002 gas prices along Mexico’s northern border were lowered to near US levels.  This was a move designed to keep gas sales and gas money in Mexico.  An added benefit for Mexico was that less trips to US pumps meant less shopping in the US before or after trips to the gas station. 

Now, approximately a year and a half after the implementation of the gas-price equalization program, Reynosa service stations have found gas demand to have increased 40%.

One gas station manager in Reynosa said that, prior to the lowering of gas prices on the border, his station’s daily sales averaged 14,000 liters.  Now the business is moving more than 20,000 liters per day.

Alberto González Karam, president of the Comisión de Asuntos Fronterizos del Colegio de Economistas (the Economists’ College’s Commission on Border Affairs), states that two million liters of gas are sold daily in the Reynosa-Matamoros corridor.  This figure is based on official reports from Pemex (Mexico’s national oil company) and translates into sales of 10.9 million pesos per day (approximately US$1 million).

Increased gas sales on the Mexican side of the border have meant a significant loss for US service stations, according to Reynosa’s El Mañana newspaper.  Also, because less people are traveling to Reynosa to fill up their tanks, less toll fees have been collected at the region's international bridges. 

Northeast Mexican Ranchers Worry About Burgos Drilling Projects

Ranchers' associations in the states of Tamaulipas, Coahuila, and Nuevo León are concerned that gas drilling will damage springs and other water sources on their land.  One cattle owner in Tamaulipas has already complained about two incidents in which PEMEX subcontractors allegedly stole property from his holdings.  PEMEX is Petróleos Mexicanos, Mexico's national petroleum company.

To confront their worries the rancher's associations from the three northeast Mexican states have asked for the help of federal-level elected officials.  They have requested that federal diputados (representatives) intervene with PEMEX to see that ecosystems and herds are not damaged by installation of the natural gas infrastructure.  

Ranchers are bothered that PEMEX is not taking responsibility for the actions of its subcontractors, says Ramón Serna, president of the regional ranchers' association for Nuevo Laredo, Tamaulipas.  PEMEX should remember that ranchers control who goes on their land, he stated. 

According to Serna, on two occasions in May of this year, property was allegedly missing from the Sabino Verde ranch where PEMEX subcontractor PGS Mexicana is said to be working. 

The associations also complained to elected officials that the oil company has not told them the true extent and nature of the Burgos Basin gas project.  The basin, which extends under all three states, is just experiencing the beginning of billions of dollars worth of investment.  Ranchers would also like to have greater information from PEMEX about when and where drilling will take place. 

Ranchers are also worried that springs and other water sources could be affected by drilling, Serna said. 

Source: EnLínea Directa (Tamaulipas), June 14, 2004.

First Anniversary for Tamaulipas On-Line Media Project EnLínea Directa

May 5, 2004 marks the one year anniversary of EnLínea Directa, an on-line news source based out of Reynosa, Tamaulipas.  An extension of the "Línea Directa" radio show from that city, the web site began as a way for area journalists to avoid the censorship they had suffered in other media venues. Word of EnLínea Directa's existence has spread rapidly and only one other Tamaulipas news site receives more traffic, Nuevo Laredo's El Mañana newspaper. 

During its first twelve months, EnLínea Directa has grown significantly and added new sections--often at the request of its readers.  Most recently the site has put links to 14 other Tamaulipas on-line news sites, most or all of which are extensions of city newspapers.  

EnLínea Directa also has relationships with news sources in Chihuahua, Durango, and Coahuila.  Soon it will be collaborating with media organizations from Sonora, Nuevo León and Baja California as well. 

According to the web-tracking service Netcraft, EnLínea Directa ranks 599,569 out of the more than 50 million web sites that the company watches.  This is an improvement from its previous position at number 1,103,937 just three months ago.  

Extremetracking.com has collected data for EnLínea Directa that shows that 66.47% of its readers are in Mexico,  11.36% are in the US, 17.76% are reading from unknown locations and other significant nations are Spain, France, Argentina and Chile.  The site has also been accessed from Norway, Sweden, the Keeling Islands (population 600+) and 67 other countries.

EnLínea Directa points out that 0.47% of its readers are from the US government, 0.10% are from U.S. schools and univerisities and 0.01% are from the US military.  

On April 26, the site broke the 100,000 hits per day mark. 

In the years ahead, EnLínea Directa wants to becoming an obligatory point of reference for Tamaulipas news.  However, more important according to its directors, is its continued dedication to its readers and its guiding principles of truth, justice, fairness, transparency and independence. 

Source:  EnLínea Directa (Reynosa), May 5, 2004. 

Asian Firms to Invest in BC Operations

The Asian firms Sony, JVC, Hitachi, SMK and Sharp will invest US$50 million in expanding their Baja California plants this year, said Sergio Tagliapietra, BC's secretary of economic development. 

Tagliapietra also stated that the investments are one of the results of BC Governor Eugenio Elorduy's visit to Asia from May 3 to May 20.  Elorduy was accompanied on the trip by other state officials and local business owners. 

Tagliapietra emphasized that it takes a sustained effort to attract Asian companies to Baja California.  One company that will be visiting the state this week was first contacted in Asia ten years ago.

In June, a group of BC officials will be returning to the continent to visit a TV manufacturing company that is greatly interested in investing in BC.  

Another trip in October to meet with possible investors will emphasize BC's customs laws and legal and labor issues, Tagliapietra stated. 

Preceding BC's trip to Asia were visits from Aguascalientes, Sonora and Colima.  Tagliapietra interprets this as meaning that his state must be very perseverant to obtain Asian investment. 

The three main objectives of the current trip were to retain companies that are currently in the state, look for new investment and plan for the future, he said. 

Source: La Crónica (Mexicali), May 26, 2004.  Article by Alejandro Domínguez. 

Casino Gambling to Baja California?

In April 2004, Mexico's Comisión de Turismo (Tourism Commission) presented a plan to the nation's congress that would allow for casino gambling if approved by elected officials.  Although some critics fear that casinos would only lead to more corruption in Mexico, those in favor of the plan believe that it would bring new tax revenues, increase tourism and help put an end to "underground" casinos.

Alejandro Moreno Medina, Baja California's Secretary of Tourism, says that the legalization of casino gambling would bring more than just roulette and dice games to his state.  Other sorts of attractions, restaurants and hotels would be necessary to attract Mexican and international tourists to any new casino resort.  All of this means more investment and jobs for Mexico, he said.  

Two of the best locations in Baja California for casinos are Tijuana and Ensenada, according to Moreno.

Tijuana is ideal because it is just across the border from San Diego.  However, Ensenada is still close to San Diego but also has the added attraction of being a smaller city with more of a coastal feel to it. 

One Mexican business council has estimated that casinos in Mexico could earn profits of US$1.3 billion per year.  In addition to this they would also produce more billions in taxes and licenses.  However, Mexico would need an investment of US$2 billion to build eleven casinos and hotels.  

A Mexican hotel association estimates that the country already has 1,000 illegal casinos that do a black-market business of US$500 million per year. 

Mexico is currently losing a lot of money as Mexican gamblers tend go to Las Vegas, Nevada.  Indeed, this group dropped US$200 million there in the year 2000 according to statistics cited in the Tijuana newspaper Frontera. 

Source: Frontera (Tijuana), May 12, 2004.  

Chihuahuans Consume More Cola Beverages than US Citizens

Driving past Chihuahua City’s Coca-Cola bottling plant it is hard not to notice of  the size of the facility.  If the plant seems inordinately large it should—it is the largest Coca-Cola bottler in all of Latin America despite the fact that Chihuahua City has a population of less than 700,000 people. 

One factor which may contribute to the size of the plant is the state's consumption of cola beverages such as Coke and Pepsi.  The state of Chihuahua, with its approximately 3.3 million inhabitants, drinks more liters of cola beverages than any other state or area in Mexico except for the region around the nation’s capital with its 20 million inhabitants.  

Chihuahuans drink an average of 110 liters of cola beverages per person per year, according to a study by the Cámara Nacional de Comercio (National Chamber of Commerce, CANACO).  This exceeds per capita cola drink consumption in the United States of 95 liters per year, the study says. 

The cola-beverage producers in Mexico with the largest share of this market are Coca-Cola with 70% of the market, Pepsi with 15%, Big Cola with 5% and the remaining brands which have 10% of the market.

The study, which looked at 112 types of soft drinks, found that more than 50% of Mexican consumers prefer cola beverages over other types of soft drinks such as Sprite or orange-flavored sodas. 

The cola-beverage market alone in Mexico is 9.1 billion liters per year, according to a Heraldo de Chihuahua story about a CANACO soft drink study. 

Average cola beverage consumption in Latin American nations is far below that of Chihuahua.  In Brazil for example people consume 34 liters of cola drinks per year.  In Argentina this figure is 54 liters.  The average for all of Latin America is 49 liters of cola beverages per person per year.

Source: El Heraldo de Chihuahua, July 26, 2004.  Article by Jesus Manuel Serrano Alvarez.